What College Students Should Know About 401k

What College Students Should Know About 401k
Good habits and behavior compound over time to lead to positive outcomes. On the other hand, continual poor habits and behavioral choices will necessarily result in negative outcomes later on in one’s life. This principle applies across all areas of life, from achieving career objectives and success to building and maintaining strong interpersonal relationships. Everything must be continually maintained and nurtured on a daily basis to achieve constant growth and beneficial outcomes.

College Students: Uniquely Positioned to Establish Good Financial Habits
This framework of thinking is even more pronounced when it comes to achieving a financial stability and success in life. Individuals who embrace positive financial choices on a daily basis from a young age, such as spending less than they make and allocating savings to effective investment strategies, will be more financially successful later in life. As beneficial habits and positive choices compound over time, so does any money allocated to investment via 401(k) plans. College students, with their entire working lives in front of them, have a unique opportunity to establish positive financial habits from the beginning of their careers. They possess the unique advantage of not having to make up for a history poor financial habits that many older adults currently face.

College Students: Mentally and Financially Flexible
With this framework in mind, it is important to teach college students about 401(k) plans and the great advantages of saving and investing from a young age. Additionally, college students are generally more mentally receptive to embracing such teachings as they are young and have not commenced any type of career in which they have starting receiving a regular, sizable paycheck. Given this lack of disposable income, they are more accustomed to living a simpler life without the trappings of high cost items such as expensive hobbies or resort vacations. Individuals more accustomed to spending frivolously on such items may find it more challenging to cut back these expenses and make the often difficult mental shift to increasing savings for the future in place of high consumption now. Embracing change and new ideas may be difficult for some, but typically not for college students.

Financial Choices Can Be Overwhelming
While college students may be more mentally flexible, they are still somewhat ignorant regarding the range of different investment vehicles and retirement contribution plans offered in the marketplace. 401(k) plans, with extensive rules, can be especially complicated to understand. As many college students have never had a regular source of disposable income, they have not had to make choices regarding how to allocate this disposable income between current consumption and future investment. The wide swatch of different investment options with accompanying costs, contribution options, and withdrawal procedures can be overwhelming for those who have never faced such decisions.

Financial Education Leads to Better Choices
Educated, informed consumers generally make better choices than those consumers who are uneducated or misinformed. As such, it is important to educate college students with basic and useful information so they can make informed choices when they are confronted with 401(k) options in their first job. They will likely appreciate any insights or information you can provide related to this subject area.

Educated College Students Are Good for Society
College students sometimes get a bad reputation today, but ultimately they will serve as the future caretakers of our society and planet. As such, it is important we educate them on all types of financial planning, to include 401(k) options. Thinking back on difficult choices in your life, you likely came to appreciate any mentorship or guidance you received. Helping young adults make beneficial, responsible choices is ultimately a beneficial thing for all members of society.

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